More jobseekers and slower growth in public sector pay helps labour market

The latest official monthly labour market figures, published this morning by the Office for National Statistics (ONS), show a further substantial increase in the size of the UK workforce alongside higher unemployment. With underlying pay growth (i.e excluding bonus payments) in the private sector remaining subdued, and growth in public sector pay slowing considerably, the labour market looks like an inflation free zone at present, despite fears about mounting inflationary pressure in the economy as a whole. But pay bargainers must ensure that ëimported inflationí does not feed into higher pay awards, says CIPDís Chief Economist, John Philpott.

Labour demand still weak

Dr Philpott continues:
ëAlthough the economy generated more jobs in the first quarter of the year, demand for labour remained weak against a background of a big rise in labour supply, boosted in large part by migrant workers. The number of job vacancies fell while redundancies increased, confirming the pattern predicted by the CIPDís own quarterly surveys of employers. The ONS figures also indicate that a relatively high proportion of new jobs were taken by self-employed people and employees hired on temporary contracts. For example, well over half the additional employees hired in the first quarter were ëtempsí. This suggests a degree of uncertainty amongst employers at present in the immediate business outlook ñ good news for the ëcontract economyí but less so for people seeking permanent positions.

ëA fall in total hours worked in the economy also suggests that employers are working staff less hard while conditions remain slack. On a more positive note, however, employment seems to have stabilised in the hospitality and retail sectors following a bout of job shedding throughout the previous 18 months.í

More migrants and fewer economically inactive people add to market slack

ëThe total workforce expanded by over 200,000 in the first quarter and by almost half a million in the preceding year. Increased migration has been the major factor though more women, older people and people classified as long-term sick have entered the jobs market too. The government will welcome the fall in the numbers of economically inactive people, including the long-term sick on Incapacity Benefit ñ especially, in light of this weekís jobs report from the OECD.

ëBut the downside of more willing hands and brains during a period of weak labour demand is higher unemployment ñ up by almost 200,000 in the year to Feb-April 2006. And on current trends claimant unemployment may well pass the political sensitive 1 million mark at some point in the coming months. Yet despite this, 8 in 10 employers tell the CIPD that they canít get the staff they need. This points to a mismatch between the quality of the workforce and the kinds of skills employers are looking for, which could spell trouble when demand for labour eventually picks up again.í

Pay pressures ease as public sector workers experience earnings slowdown

ëThe one benefit of a slack labour market is that pay pressures remain subdued. Although the ONS figures show that bonus payments boosted pay packets in the spring ñ with City workers likely to have been the main beneficiaries ñ what really matters for inflationary pressure is the annual rate of growth in underlying earnings excluding bonuses. This fell to 3.8 per cent in the year to April. And while the rate of pay growth in the private sector was unchanged at 3.8, the rate fell by 0.4 percentage points to just 3.5 per cent in the public sector. Public sector workers are now receiving lower pay increases than at any time since the governmentís public sector jobs bonanza began earlier this decade, which spells the end of the relatively good times enjoyed by public servants in recent years. The overall pay figures also indicate that the ëimported inflationí worrying the Bank of England has still not fed through into pay rises. The coming months will therefore be critical for pay bargaining in both the public and private sectors in order to ensure that the labour market does not start to put additional pressure on the Bank to raise interest rates.í